NSW has raised either $22 billion or $38 billion on the sale of its electricity assets, depending on how you calculate it, but it has not reinvested a cent.

We have always supported NSW putting its electricity proceeds into transport infrastructure, but when you add Snowy Hydro in, NSW has raised $22 billion of direct cash from the sale of electricity assets and taken an additional $16 billion of debt off the NSW Government balance sheet.

So on one view that’s $38 billion of spending power freed up. Not one dollar has been put back into electricity.

Figure 1: NSW capital raised from electricity

Over the next 15 years most of the NSW coal power stations will close – NSW Govt. needs to publicly acknowledge this.

We’ve been through this already, but Liddell is closing in 2022 and AGL has stated that Bayswater will close in 2035. Origin Energy, a public company that does not make public statements lightly, has stated that Eraring will close by 2032 at the latest.

In our view its very likely that Vales Point B will close in the same time frame.

It’s past time the NSW Govt actually publicly acknowledges that it has heard what the owners of these stations plan and what it’s going to do about it. It’s very poor policy to bury your head in the sand and just say it won’t happen.

What does the NSW Govt think is going to happen?

Do they even think? Do the policy makers imagine that new coal stations are going to be built? That will certainly require new coal mines and the required coal price for a new mine in NSW is probably at least A$100/t pushing the electricity price right up even before the carbon risk.

Is NSW going to import even more of its power from Qld and Victoria? If so, where is the transmission planning?

Where is the extra power required to run Snowy 2.0 going to come from?

Price will induce new supply but arguably not in the most efficient way

Is NSW just going to sit around and watch the wholesale price of electricity rise until it is so high that even AGL and Origin will invest?

We actually think that strategy will probably work but could easily result in under investment and will result in more NSW business closing and the uncertainty that always accompanies a lack of policy clarity and the associated price volatility.

Kick starting the $30 bn process along

NSW needs broadly 20GW of power to replace the coal fleet. At average prices that’s probably around $30 billion of nominal investment and less in NPV terms (nominal price declines and of course a lower time value of money if the investment is spread over time).

If the investment is made in a steady fashion it’s an easy job.

Let’s say it again, it’s an easy job.

If California can do it, so can NSW. What’s needed is a policy by the NSW Govt to make sure this steady investment proceeds. It doesn’t have to be a massive deal.

We argue that reverse auctions of even 500-1000 MW per year would provide enough confidence to get a steady stream of investment flowing. Its actually much better for costs to get the job done steadily rather than in a rush.

Figure 2: Replacing NSW coal generation. Source:ITK

Lack of State backing for Transmission upgrades probably also hurting

It’s well know that there is a long list of projects with planning approval in NSW that are not getting built. There are two obvious reasons.

One is the lack of revenue certainty and the other one is transmission access. Both are problems the the NSW Govt. could assist with. South Australia, Victoria and Queensland are all taking steps to ensure more generation investment in their State.

Futures already show NSW falling down on the job

FY2022 NSW futures are now quoted on the ASX. Despite the advantage of cheap imported power from Qld and Victoria having to replace Hazelwood, it’s now a fact that the quoted price for power in NSW in FY22 is higher than in Victoria.

In our view this is first straw in the wind of how the lack of policy in NSW is causing trouble.

Equally you could say that the investment signal in NSW is now stronger than in Victoria for that year.

Figure 3: Baseload futures. Market sees policy as leading to higher

David Leitch is principal of ITK. He was formerly a Utility Analyst for leading investment banks over the past 30 years. The views expressed are his own. Please note our new section, Energy Markets, which will include analysis from Leitch on the energy markets and broader energy issues. And also note our live generation widget, and the APVI solar contribution.

David Leitch is a regular contributor to Renew Economy. He is principal at ITK, specialising in analysis of electricity, gas and decarbonisation drawn from 33 years experience in stockbroking research & analysis for UBS, JPMorgan and predecessor firms.

David Leitch is a regular contributor to Renew Economy. He is principal at ITK, specialising in analysis of electricity, gas and decarbonisation drawn from 33 years experience in stockbroking research & analysis for UBS, JPMorgan and predecessor firms.

22 Comments

Charles Hunter 1 year ago

The main problem is that you are talking to a Premier who, as a Minister for Transport, achieved exactly one thing: changing the colours on the signs in railway stations. I have seen no evidence that either the Premier or the Cabinet have the combined mental capacity to understand these arguments. Sports stadia and glad-handing opportunities, yes. Electricity supply & climate change, no.

George Michaelson 1 year ago

The federal government will proffer 1:1 matching funds for any capital raised by selling off state assets, for infrastructure development which meets their goals. Thats why Victoria scored so much money from the Turnbull government.

Would re-capitalisation of state owned generation and distribution meet their goals? Ports do. Roads do. Rails do. What about transmission systems and Generation?

The other problem is that Liberal free market economics prefers retiring state debt to investing in state enterprises. So, the capital sourced by selling off the assets is going to be burned on a ritual fire, and then we’re all going to pay profit+ prices to get the same things back from private sector competition with inadequate market regulation, instead of the benefits of capital investment because debt is bad. Really? debt looks pretty good to me.

Peter F 1 year ago

It was 15% and the scheme is closed

bedlam bay 1 year ago

We can blame the NSW government for our escalating power prices which will continue. Baird was the main offender in flogging well over 100 entities. Land Titles Office sale is a huge scandal. We urgently need to track the revenue flow of billions which may be hard from arrogant, incompetent secretive government.

And I dare say, they will still be talking about it in another 10 Years. $5 billion sounds too cheap anyway.

Paul Surguy 1 year ago

They are to build a gas pipe line to Mt Isa from Tennent Creek not sure if this has started yet,there was a problem with the tender I believe

Joe 1 year ago

…from the NT perhaps with the ‘New’ fracked gas?

Les Johnston 1 year ago

The NSW Government has blown its billions on road infrastructure. Every year its another $15b – serious capital flow. When you add in the light rail disaster, the NSW Government has its future financial commitments also tied up. There is no money available to blow on electricity generation. That may be fortunate as it will mean no fossil fuel generators. The FiT could be used to foster significant small scale renewables.

Joe 1 year ago

The NSW Liberal Govt. is too busy selling anything and everything to do with electricity to even bother about the question of electricity generation. They have no right selling public assets ( assets that we / NSW citizens own/ed ) in the first place with the billions of $’s raised being pissed away on Westconnex, Northconnex, Stadium knockdowns and rebuilds, tearing up The Inner West heavy rail line to replace with a metroline. Then the Daddy of them all The CBD to Eastern Suburbs light rail line. A worthwhile project that is now going to court as the ‘disagreement’ between the Govt. and the construction company is exposed in the media with more money being pissed away in court and potentially compensation payment to the construction company. All of this is no problem when the NSW Govt. has ‘our’ $’s billions to play with.

Frank Speaking 1 year ago

Remember the LNP track record of corruption and inefficiency – also why they nobbled the ICAC

Connor 1 year ago

If I was a NSW electricity customer I’d be very concerned once their coal is shut down. On the OpenNEM gadet on this site, you can see that NSW is ALWAYS importing power. It’ll end up as a laughing stock once they begin importing almost all their power from everywhere else.

Only in Australia….

Malcolm M 1 year ago

Until there is more transmission investment, most prospective renewable energy NSW sites are limited by – Tamworth to Liddell lines, which have a capacity of ~1800 MW. These lines lead to the wind farms on the New England Tablelands, good solar sites in the north-west of the State, but their half capacity is often taken up with imports from Queensland – the Darlington Point to Wagga Wagga single circuit 330 KV line, which has a thermal limit of ~570 MW. This line limits power flows from excellent solar resources in the Riverina and further west, which also have the advantage of producing into the summer evening peak because of being further west in the State.

One of the few visionaries is Transgrid, who would increase their asset value if their plan to link the renewable energy zones with demand centres is approved by the regulator.

BushAxe 1 year ago

The NSW-SA interconnector will largely fix the lack of transmission capacity in Southern NSW.

Greg Hudson 1 year ago

”but their half capacity is often taken up with imports from Queensland” Which could be eliminated by building wind /solar / batteries ‘between’ Qld and the demand center(s). Pretty much a no brainer IMO.

Malcolm M 1 year ago

These aging coal stations will become a lot more expensive to operate in the last 5 years before their planned closure dates as repair costs increase. AGL claimed that power from Liddell would cost $109/MWh beyond its 2022 closure date. It’s probably not cheap to run now, with a coal price equivalent to $46/MWhr plus costs of an on-call repair crew. So the next station to experience Liddell-like reliability should be Vales Point starting in 2024.

Peter F 1 year ago

While I rate Malcolm M’s opinions very highly. I suspect rooftop solar, including solar canopies over carparks, railway stations etc can contribute a lot more power into the Newcastle to Sydney coastal strip. Insolation in that area is as good or better than California and NREL says California can get 73% of its power from rooftop solar at 16% efficiency. As we approach 22% solar efficiency, NSW can theoretically get to 90-95% from rooftops.

Combined with on premises and substation storage and smaller wind and solar farms close to towns like they build in France, it is quite likely that 40-60% of energy won’t go near the transmission grid and some of the rest can be transmitted off peak.

NSW is currently installing about 30 MW per month of rooftop and 2-3 MW of large customer systems. Based on performances in other regions that could easily be expanded to 750 MW per year. At that rate they can install 12 GW by 2035. That still won’t be anything like 100% solar but it will relieve the transmission grid of 25% of its current load

GlennM 1 year ago

Agreed…but that is just extrapolating the current rate. the installation rate is growing..I suspect your estimated 12GW will be closer to 2025 not 2035.

Peter F 1 year ago

I hope you are right

neroden 1 year ago

Based on the standard exponential growth curve applying to solar (doubling every two years)…

NSW government is on an infrastructure spending spree. The most recent event I attended with the minister and the cabinet talked up the $40.5 billion works expenditure already in process, a further $40 billion of advance commitments, and a future $140 billion that will come largely from the private sector investment to fund the Western Sydney Airport and a technology city that will be built up around it.

Spending money on Energy Assets? The last thing on Gadys’ mind, though she is listening she says.

In principle she is correct to take this position under the circumstances.

In 2007 when electricity was priced at 13 cents per unit and total Australian consumption was some 247 billion kWhrs per year I proposed a 3 cents per unit levy to be pooled to fund new renewables infrastructure. The pool would be tendered to by industry private performers on the basis of energy return per renewable class per dollar spent. As the assets were to be fully funded by the pool which was itself drawn from the energy users themselves, there was no investment interest component in the delivered electricity price thereby ensuring continued low cost electricity delivery but of renewable power which would build every year. The fund was to yield $8 billion per year for new infrastructure investment. This is similar to the RET but far more certain and the assets would have been the property of the energy users, operated and managed by private contractors.

The renewable infrastructure levy did not come to pass as at the time economists were juggling to experiment with market based instruments, John Howard and his attack dog Tony Abbott were acting to prevent or delay Climate Action and the essential concept of reducing CO2 emissions at the maximum rate was lost in the noise.

We deserve what we get as we refuse to think constructively. Just as, should Australians fail to demand a Royal Commission into Australia’s Response to Climate Change, we deserve the Climate Disaster that is already shaping up. Sadly our children have no say in the decisions we are making on their behalf.